No rest for leisure investors

Gaming, lodging and cruises all battered down

By

WilliamSpain

CHICAGO (CBS.MW) - If they didn't know it already, investors in gaming, lodging and cruise companies learned Monday that this is no time to relax.

From Harrah's Entertainment to Hilton and Carnival to MGM Mirage, leisure travel specialists were reeling from flight cancellations and traveler nervousness - on top of already challenging economic conditions.

Of the three sectors, gaming was probably holding up best as at least some big operators managed to stay off 52-week lows.

Even so, diversified gaming operators got hurt, although not as badly as those with the most exposure to Las Vegas. The majority of the gambling center's customers arrive by plane; air transportation is the city's economic lifeline and as long as it disrupted - and Americans are reluctant to fly -- the pain is apt to continue.

Business at MGM Mirage is "just awful," said spokesman Alan Feldman. Occupancy levels at the company's core Las Vegas properties "about half what it would be normally. In 11 years out here, I can't recall ever seeing anything like this."

Fortunately, "the cancellations for the most part are confined to the next couple of weeks. We are hopeful that this is going to be a short-term problem and one that see some resolution quickly. But the truth is, it's anyone's guess."

Shares in MGM Mirage
MGG, -5.45%
which had been staying above lows for much of the session closed down over 22 percent, or $6.31, to a 52-week low of just $22.

Over at Harrah's
HET, +0.94%
which was off over 14 percent, or $4.11, to $24.60, "the primary impact has been in Nevada - both in Las Vegas and in Northern Nevada," the latter of which had already been suffering from the effects of the economic slowdown in Northern California, said spokesman Gary Thompson.

As of Friday, he said, 3,000 room nights at Harrah's Las Vegas properties had been cancelled, a relatively small percentage considering that the company has almost 5,200 rooms in the city.

"We anticipate that things will be slow for at least the next ten days," Thompson said, but there have been no cancellations for October as yet. Business has also been off "modestly" in the company's other markets, including Atlantic City and Midwest riverboats.

Some of the most dramatic news came out of Park Place Entertainment Monday morning. Before the bell, the No. 1 casino operator said that it would postpone the construction of a much-anticipated $475 million hotel tower at Caesar's Place.

In order to "maintain a high level of flexibility," CFO Scott Laporta said that Park Place was "not initiating any new capital projects at this time [and is] looking a number of ways to reduce our operating costs, including the reduction of our overall head count by attrition."

Shares in Park Place
PPE, +2.48%
closed down $1.92, or over 19 percent, to $8 - its lowest level since early 1999.

To round out the big-caps, Mandalay Resort Group
MBG, +0.24%
was off $4.90, or over 20 percent, to $19; Station Casinos
STN, -0.39%
which caters to the local Vegas market, gave up $1.27, or just over 10 percent, to $10.98.

In a note to investors, Jason Ader of Bear Stearns said that gaming companies already hit by cancellations and drops in new bookings, may start dropping room rates and offering other discounts. That could pressure earnings, which would in turn hit stock prices.

"On the other hand," he continued, "we believe those companies with share repurchase programs in place [including MGM Mirage, Harrah's, Park Place and Mandalay] will be aggressive in buying shares over the next several weeks," something Ader described as "a major positive."

In sum, "we believe the next several quarters could be challenging for the gaming industry. . .although we believe gaming is more insulated than most other leisure and travel industries at this point."

Certainly, that seemed to be the feeling on Wall Street as lodging and cruise lines were beat up even harder.

Goldman Sachs analyst Steve Kent said that he expects the "terrorist attack will reduce earnings significantly for the hotel companies in 2001," with downside potential of between 10 percent and 30 percent.

"Operators are already seeing enormous cancellations and virtually no new bookings," he said. For instance, Starwood said 50 percent of calls were made to cancel room nights and Marriott "was seeing cancellations for the next two weeks."

In the near-term, the "impact will be far greater than the Gulf War but expected recovery [will be] faster and stronger." The reason, Kent said, is that there was big build-up in supply just prior to that conflict and the demand fell-off just as it peaked whereas now, supply growth had already been tapering off. So, 'when demand returns, we think the eventual recovery will be greater as excess supply will not have to be 'worked off'."

Virtually all of the big lodging companies touched year-long lows Monday. Hilton
HLT, -0.26%
fell almost 24 percent to $8.55; Host Marriott
HMT, +5.36%
was down almost 25 percent to $8.86; and Starwood
HOT, -0.55%
lost better than 28 percent to $21.15.

But they don't have a patch on cruise lines, which sank the deepest of any leisure category in the Monday session.

Part of that drop is due to their dependence on air travel to bring customers to the docks. But there is may also be a perception at work that large, unprotected vessels full of Americans could offer tempting targets for a follow-up attacks. Plus, unlike lodging companies that should at least get some essential business travel business and Vegas, a big convention destination, no one actually really needs to go a cruise.

Carnival
CCL, +1.08%
fell $9.09, almost 32 percent, to $19.43, Royal Caribbean
RCL, -0.26%
was off over 40 percent, or 8.55 to $12/76; and Princess
POC, -16.67%
lost almost 39 percent to $13.10.

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